SUL
Supercheap result is out.
Stock disappointed the market, cashflows very weak. Here is the 60 second blast.
In charts
The pandemic creates a big lift in demand for recreational activity, namely leisure time not spent in a casino, or at a music concert, but rather outdoors doing things like boating, camping, fishing.
It stands outs as “obviously different” to the pre-pandemic sales trajectory.
In our view, that sort of bump won’t be maintained when life returns to normal, post pandemic, as we all go off and get haircuts, travel, gamble, whatever it may be.
So it looks like the company might well be “over-earning”.
But SUL takes on big lift in inventory, seemingly on the assumption that it will continue indefinitely (to be charitable, at the least, you might say it is a precautionary inventory build given fears of supply-side shortages) which is at odds with over-earning.
This inventory-ate-all-my-cashflow theme (which we’ve talked quite a bit about on this blog) is proving accurate (see below, the very large drop in OCF, noting that FCF is less than the dividend + interest).
There are, in consumer discretionary land, lots of bets on how sustainable goods demand growth would/will be, leading to these sizeable and expensive working capital builds, which was/is over optimistic, we think.
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